Jesse’s Café Américain: Bear Trap Developing in Gold?

Jesse describes a flow of gold East to West. This has been going on for some time, yet with the writing on the wall and war lost by the West, the west persists in the selling and leasing of gold that does not exist. The bold emphasis below is mine and strikes to the essence of what is happening. The West is selling paper and the East is buying physical gold. Along the way the miscellaneous ants and sheeple are tricked to either cough up their physical to join the flow East or they are tricked into not intercepting some of that flow of physical on the way East to provide a timeless mechanism to preserve their wealth.

For those who endeavor to walk in the footsteps of giants, the measures taken to ensure the flow moving from West to East should be met with an attitude of thankfulness and gratitude. Why should we be concerned that the paper gold price is being manipulated lower? Are we going to sell our physical? Are we not getting the opportunity to buy more physical gold at a fictitious price dictated by a huge supply of paper gold?

This idea of a flow of physical gold is powerful and illuminates much as to why this obvious system of fractional reserve gold and paper gold has developed and persists. It serves the interests of both sides of the trade, the buyer as well as the seller. The seller in this case is the West who has already defaulted on its debt obligations years ago by adopting a debt based fiat money system. In fact, no government ever honors its debt. To facilitate its grip on power, government must find a way to sidestep its debt and pile on more. Paper fiat anchored by nothing other than a promise to pay is the preferred money for the West.

Fractionalizing gold increases apparent supply and drives down the price lower than it normally would be. This discourages users of gold who seek to store wealth, a critical function of money. The result is that confidence is lost in gold and gained in gold’s competitor for the saver’s capital, the dollar. When a saver parks his money in the dollar it allows the banks to fractionalize those dollars and pyramid upon them in the form of new credit. The banks love this because they use the saver’s productivity to extend credit in return for a paltry lease rate, all the while they collect an exorbitant interest rate for the credit created. Quite simply the banks act as a parasite, living off the productivity of both the saver and the debtor. The West is quite comfortable with this situation and sells to facilitate a monopoly in the dollar, not for profit on the gold sale.

A debt based system requires ever increasing levels of debt to sustain it. Debt is consumption, one must by definition consume more than they produce to acquire debt. The West is a net consumer and they must trade money for goods and services that it does not have, therefore they must turn to net producers. The East is the productive engine of the world.

The East needs to trade their productivity for money. They are net savers because they produce more than they consume. Their concern is to acquire wealth and then to preserve it. In nominal terms there is literally a limitless amount of money to be made selling goods and services to the consumers in the West, for the West has a limitless supply of paper money. In real terms however, money is limited by the ability for the West to liquidate stored wealth or to earn it through productive efforts of their own. This real wealth, real money, is what concerns the East. They are happy to take paper fiat to the extent that the paper maintains value. Since all paper fiat loses value and eventually dies a worthless death as a mere scrap of paper and ink, and to the extent this occurs, a requirement exists to receive payment in a supplemental form of money that makes up the difference in value between the goods delivered and the payment received in paper. This supplemental money is nothing other than traditional money to the East, gold. Gold is the preferred money in the East.

As long as partial payment can be had in or converted to physical gold, the East is happy. To attain partial payment in gold there must be a flow of gold from the West to the East. Gold is peculiar in that a strong price tends to make people hoard it. When people choose to hoard gold it cannot flow to where it is wanted and needed. Therefore the East is also served well by a lower gold price as the West is served. The East is not concerned with price of gold in currency terms because they are not sellers of gold for paper. They are buyers of gold to hold wealth. They are concerned with tonnage, not dollars, Yen, Yuan, and Euros. They are concerned with the flow of real physical gold into their hands. The current fractional reserve gold system with its bogus paper gold price serves to maintain the flow of gold East to West. They are only too happy to see the West manage the price of physical gold lower with seemingly endless supplies of paper to flush out as much physical as possible.

So our system exists because it benefits the users, both savers and consumers. It will persist until it cannot exist any longer. At this point the gold will stop flowing and gold will be the global reserve asset, the majority of which will reside in vaults in the East. This century is indeed the Century of the East, the new global empire to replace the busted West.

The simplistic solution is an elegant solution. There is no need for complex theories or conspiracy to describe why the fraudulent paper gold market persists. It simply exists to facilitate the flow of physical gold. Without this flow, economic activity ceases. The flow of gold never really ceased when gold and the world’s currencies parted ways. It just went underground. The flow persisted in the shadows. Now that the dollar based international monetary system is failing, the flow of gold is becoming visible again and it commands a greater portion of payment for services rendered. This process will continue until gold is once again money, where virtually all value will be settled by the flow of gold and a small portion by fiat paper, the exact opposite of our current situation.

Acquire physical just as the East is doing. Do not be concerned with price in dollars, for that is meaningless in the end. Concentrate on ounces.

There are high expectations ahead of the Fed’s September announcement tomorrow afternoon.

Traders are betting the Fed will cap rates in Operation Twist. There are also even odds that the Fed will cut the rate it pays on bank reserves which it holds. The thinking is that it will give banks more incentive to lend. The downside is the view that if it becomes too close to zero, people will stop making markets in the shortest term Treasuries.

If they do lower this rate, I will view it as justification for the view I put forward over the past two years that the Fed interest payment on reserves acts as a bit of a drag on commercial activity by drawing funds out of the marketplace, in addition to being a tool for managing short rates around the zero bound.

Nice bounce in gold today, but notice it still has not broken the short term down trend. I expect that situation to be resolved one way or the other around 2:30 tomorrow afternoon. But that is the short term paper market. The broad sweep of the global physical market is another story altogether.

“…For what it is worth, this [leased central bank] gold goes right into an Asian vault and it is gone from the West permanently. This is having the effect of transferring Western solid assets over to the East, in size. This has the appearance of desperation because in the end this is really an attempt to save the too big to fail banks that are on the wrong side of a derivative play yet again. That is the reason this is being done.

Western central banks don’t really want that gold to disappear like that, they don’t want to sell that gold. They had to raise dollars in a hurry to pump liquidity into the system, but in the end, as I said, the gold is gone. In the old days the gold would be floating around the LBMA system, there would be a little bit of erosion, but today that gold is being sucked into the East.

This price action has had the effect of creating bearish sentiment, but meanwhile the physical buyers are just sitting there and constantly accumulating physical gold. There are massive orders for tonnage of gold, incredible amounts between $1,715 and $1,760. This has the effect of putting a physical floor under the price of gold. If they make a push to the $1,715 level that would be suicide in my opinion. There are simply too many massive orders for physical gold down to that level for that to be breached.

During this quarter this leased gold is supposed to be paid back, but how? As the central banks come to grips with the reality that the leased gold is gone, there may be a religious experience to the upside in gold and you will see the gold price break the $2,000 level.”

London Trader: Massive Physical Floor Under Gold as Asia Buys What West Offers – KWN

This scenario tracks with my charts to an almost uncanny level. But let’s see what happens. We still have to get past the FOMC monentary decision tomorrow and the Comex option expiration next week.

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